Tax on savings

Daliah

Mrs-3D said:

I’m confused, I’m 60 not claiming a pension but have given up work as I have savings to live on, do I pay tax on my savings if I am unemployed and don’t claim benefits or a pension?

You never pay tax on savings, only ever - potentially - on any interest that you receive for your savings. Income tax rules are independent of your age, details as per the link posted above.

youngretired

Mrs-3D said:

I’m confused, I’m 60 not claiming a pension but have given up work as I have savings to live on, do I pay tax on my savings if I am unemployed and don’t claim benefits or a pension?

No you won't pay any tax on yours savings if you have no other income, unless your savings interest for the year exceeds £18570. This would be reduced to £17310 if you participate in the marriage allowance.

I've not worked since 2011 and live of my husband's income and savings. Never paid any tax on savings since 2016 when the personal allowance came in and prior to this claimed it back.

Bigwheels1111

refluxer said:

Mrs-3D said:

I’m confused, I’m 60 not claiming a pension but have given up work as I have savings to live on, do I pay tax on my savings if I am unemployed and don’t claim benefits or a pension?

As I understand it, most people can earn up to £18,570 a year in combined income and savings interest before they start paying tax.

Have a read of this https://www.moneysavingexpert.com/savings/tax-free-savings/ 

Thats what I was told by HMRC.

If you earn more than 10K in interest you will need to fill out a tax return online, but no tax will be paid if under £18,570

mebu60

Ocelot said:

Ade99 said:

Thank you all.  So £1k is tax free, then 20% tax on the other £2k, therefore £400 due in tax. 

Am I correct in thinking that HMRC would then adjust my tax code for the next tax year to gradually reclaim that £400 over 12 months rather than them asking for £400 from me as a one-off payment?

Yes, that is correct. 

They've been doing it to mine for 5 years. Unfortunately, the lowered tax free allowance takes me into the higher rate bracket and I have to pay 40% on my savings.

There is an option to pay the tax due in the January as a one-off payment (as well as the first instalment on account).

Would that be of any benefit in getting your allowance high enough to avoid the 40%? 

NewPieman

I guess with the increase in Interest rates - there's going to be a lot more people now going to be in scope of maxing out their PSA.....and ISA's are going to be come more attractive?

Dazed_and_C0nfused

NewPieman said:

I guess with the increase in Interest rates - there's going to be a lot more people now going to be in scope of maxing out their PSA.....and ISA's are going to be come more attractive?

If they've used their Personal Allowance and savings starter rate then yes I guess so.

But there is still a gap before an ISA is worthwhile for most people.

3.0% taxed beats 2.3% in an ISA for most people.

TojoRalph

@Mrs-3D A retiree with no other taxable income than savings is an example none of the guides seem to give, which is unfortunate.

@NewPieman and @Dazed_and_C0nfused. The increase in savings interest rates potentially pushing peoples savings income into a taxable situation is a good point and why I have been looking at things. In doing so I note a 1Yr Fixed rate ISA with Castle Trust and Santander are at 3.15% and 3.00% respectively, which closes the gap between 1Yr fixed ISA's and fixed savings.

Is everyone happy that a person can use their personal allowance for savings income and thus someone with no other taxable income can earn £18,570 in taxable savings income tax free? I read the available info differently, but I am sure it has been discussed many, many times on here. Thanks.

soulsaver

Dazed_and_C0nfused said:

NewPieman said:

I guess with the increase in Interest rates - there's going to be a lot more people now going to be in scope of maxing out their PSA.....and ISA's are going to be come more attractive?

If they've used their Personal Allowance and savings starter rate then yes I guess so.

But there is still a gap before an ISA is worthwhile for most people.

3.0% taxed beats 2.3% in an ISA for most people.

Consider 3.0% in an ISA (Santander 1 year fix, for example) is equiv to 3.7% to BR , & 5.0% to a HR tax payer...

Dazed_and_C0nfused

TojoRalph said:

@Mrs-3D A retiree with no other taxable income than savings is an example none of the guides seem to give, which is unfortunate.

@NewPieman and @Dazed_and_C0nfused. The increase in savings interest rates potentially pushing peoples savings income into a taxable situation is a good point and why I have been looking at things. In doing so I note a 1Yr Fixed rate ISA with Castle Trust and Santander are at 3.15% and 3.00% respectively, which closes the gap between 1Yr fixed ISA's and fixed savings.

Is everyone happy that a person can use their personal allowance for savings income and thus someone with no other taxable income can earn £18,570 in taxable savings income tax free? I read the available info differently, but I am sure it has been discussed many, many times on here. Thanks.

Yes.  But if that person is married and have applied for Marriage Allowance they will have a reduced Personal Allowance of £11,310.

It is explained (not brilliantly) on gov.uk.

https://www.gov.uk/apply-tax-free-interest-on-savings

TojoRalph

Dazed_and_C0nfused said:

TojoRalph said:

@Mrs-3D A retiree with no other taxable income than savings is an example none of the guides seem to give, which is unfortunate.

@NewPieman and @Dazed_and_C0nfused. The increase in savings interest rates potentially pushing peoples savings income into a taxable situation is a good point and why I have been looking at things. In doing so I note a 1Yr Fixed rate ISA with Castle Trust and Santander are at 3.15% and 3.00% respectively, which closes the gap between 1Yr fixed ISA's and fixed savings.

Is everyone happy that a person can use their personal allowance for savings income and thus someone with no other taxable income can earn £18,570 in taxable savings income tax free? I read the available info differently, but I am sure it has been discussed many, many times on here. Thanks.

Yes.  But if that person is married and have applied for Marriage Allowance they will have a reduced Personal Allowance of £11,310.

It is explained (not brilliantly) on gov.uk.

https://www.gov.uk/apply-tax-free-interest-on-savings

Thanks. Weirdly I read that page but somehow missed this important part. Doh!

"Personal Allowance - You can use your Personal Allowance to earn interest tax-free if you have not used it up on your wages, pension or other income".